COURT OF APPEALS
SECOND
DISTRICT OF TEXAS
FORT WORTH
NO. 2-03-145-CV
ATLAS COPCO TOOLS, INC. APPELLANT
V.
AIR POWER TOOL & HOIST,
INC. APPELLEE
------------
FROM THE 342ND
DISTRICT COURT OF TARRANT COUNTY
OPINION
I. INTRODUCTION
Appellant
Atlas Copco Tools, Inc. manufactures and sells industrial tools throughout the
United States, primarily through regional distributors. Beginning in 1994,
appellee Air Power Tool & Hoist, Inc. became one of appellant’s
nonexclusive authorized distributors within parts of Texas and Louisiana. In May
2000, appellant appointed another Texas distributor, Tooling Technologies, L.L.C.,
by executing a nonexclusive distribution agreement, which included beneficial
provisions that appellee’s agreement did not contain. Soon after, appellant
began assigning customers between the two distributors. In September of 2000, a
new contract was negotiated between appellant and appellee. Appellee felt it was
coerced into signing the new agreement, which ceded large, existing customers to
Tooling Technologies. During late 2000, appellant began receiving service
complaints from its Motor Vehicle Industry (“MVI”) customers, which
purchased the more complex electrical tools as opposed to basic pneumatic “air
powered” tools. As a result, in late 2000 and early 2001, appellant assigned
all of appellee’s MVI accounts to Tooling Technologies. Appellee felt it was
forced to agree to these changes. Appellant notified appellee’s
“reassigned” customers by email.
On
April 4, 2001, appellee filed suit against appellant and Tooling Technologies
for anticompetitive practices under Section 15.05 of the Texas Free Enterprise
and Antitrust Act (“TFEAA”), false promise of future performance, business
disparagement, tortious interference with prospective relationships, fraud and
constructive fraud, misrepresentation of confidential information, and negligent
or intentional misrepresentation. The trial court granted summary judgment for
Tooling Technologies on all claims against it.
At
trial, the jury found that (1) appellant engaged in “a contract, combination
or conspiracy in restraint of trade” and that such action was “willful and
flagrant” under the TFEAA; (2) appellant disparaged the business or reputation
of appellee; and (3) appellant breached the relationship of trust and confidence
that existed between appellant and appellee. Based on the jury’s findings, the
trial court awarded appellee $700,000, which it trebled pursuant to the finding
of willful or flagrant conduct under the TFEAA to $2,100,000, attorney’s fees
in the amount of $123,761.56, and court costs in the amount of $9,160.60. After
the trial court denied appellant’s motion for judgment notwithstanding the
verdict and motion for new trial, this appeal followed. We reverse and render.
II. SUFFICIENCY OF THE EVIDENCE SUPPORTING
DAMAGES
In
its seventh issue, appellant argues that the evidence was legally and factually
insufficient to support the jury’s award of damages. Here, because appellee
bore the burden of proof at trial, we will address appellant’s legal
sufficiency complaint as a “no evidence” issue. See Gooch v. Am. Sling
Co., 902 S.W.2d 181, 184 (Tex. App.—Fort Worth 1995, no writ.). In
determining a “no-evidence” issue, we are to consider only the evidence and
inferences that tend to support the finding and disregard all evidence and
inferences to the contrary. Bradford v. Vento, 48 S.W.3d 749, 754 (Tex.
2001); Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex.
1996); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951).
Anything more than a scintilla of evidence is legally sufficient to support the
finding. Cazarez, 937 S.W.2d at 450; Leitch v. Hornsby, 935 S.W.2d
114, 118 (Tex. 1996). More than a scintilla of evidence exists if the evidence
furnishes some reasonable basis for differing conclusions by reasonable minds
about the existence of a vital fact. Rocor Int’l, Inc. v. Nat’l Union
Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002).
A
“no-evidence” issue may only be sustained when the record discloses one of
the following: (1) a complete absence of evidence of a vital fact; (2) the court
is barred by rules of law or evidence from giving weight to the only evidence
offered to prove a vital fact; (3) the evidence offered to prove a vital fact is
no more than a mere scintilla of evidence; or (4) the evidence establishes
conclusively the opposite of a vital fact. Uniroyal Goodrich Tire Co. v.
Martinez, 977 S.W.2d 328, 334 (Tex. 1998) (citing Robert W. Calvert, "No
Evidence" and "Insufficient Evidence" Points of Error,
38 TEX. L. REV.
361, 362-63 (1960)), cert. denied, 526 U.S. 1040 (1999).
A
party seeking to recover lost profits must prove the loss through competent
evidence with reasonable certainty. Szczepanik v. First S. Trust Co., 883
S.W.2d 648, 649 (Tex. 1994); VingCard A.S. v. Merrimac Hospitality Sys., Inc.,
59 S.W.3d 847, 863 (Tex. App.—Fort Worth 2001, no pet.). While this test is a
flexible one in order to accommodate the myriad circumstances in which claims
for lost profits arise, at a minimum, opinions or estimates of lost profits must
be based on objective facts, figures, or data from which the amount of lost
profits can be ascertained. Tex. Instruments, Inc. v. Teletron Energy Mgmt.,
Inc., 877 S.W.2d 276, 279 (Tex. 1994); Szczepanik, 883 S.W.2d at 649;
VingCard A.S., 59 S.W.3d at 863. In other words, “reasonable
certainty” is not demonstrated when the profits claimed to be lost are largely
speculative or a mere hope for success, as from an activity dependent on
uncertain or changing market conditions, on chancy business opportunities, or on
promotion of untested products or entry into unknown or unproven enterprises. Teletron
Energy Mgmt., Inc., 877 S.W.2d at 279-80; VingCard A.S., 59 S.W.3d at
863.
Here,
over objections of appellant lodged before, during, and after trial, the trial
court permitted appellee to present the testimony of its damages expert, Janet
Collinsworth. Collinsworth’s testimony was the only evidence presented by
appellee as to the amount of its purported damages. Collinsworth presented
alternative damage models of “lost profits” and “injury to corporate
goodwill,” of $2,239,450 and $2,283,202 respectively, which were both premised
on projections of lost profits from the sales of appellant’s products for
nearly six years, or through 2006.
In
the lost profits model, Collinsworth simply totaled lost profits from 2001, the
year of termination, through 2006 arising from projected lost sales of
appellant’s products, and discounted the total to present value. In the
goodwill model, Collinsworth ran her profit projections through a pro forma
income statement, then totaled up the projected cash flow over six years, added
a “terminal value” representing projected cash flow for an indefinite period
thereafter, discounted the totals to present value, and then compared the
results to similar projections assuming no appellant sales. These projections,
however, ignored the terms of the agreement, the facts of the case, and Texas
law regarding the calculation of lost profits.
A. Terms of the Agreement
The
evidence conclusively established that appellee had no right to sell
appellant’s products except for their agreement. The September 1, 2000
agreement in effect at the time appellee filed suit in April 2001 provided that
it would remain in effect for one year and would automatically renew for
additional one-year terms, unless either party provided forty-five days prior
written notice. It also allowed either party to terminate the agreement without
cause upon sixty days written notice. Appellant sent appellee such a termination
letter effective October 15, 2001. Moreover, appellee’s principals testified
that shortly after a March 2001 meeting at which appellant told them to stop
selling to MVI accounts, they decided to no longer honor their obligations under
the agreement.
In
United Way of San Antonio, Inc. v. Helping Hands Lifeline Foundation, Inc.,
Helping Hands, a former affiliate of the United Way, brought suit against the
United Way for breach of contract and business disparagement. 949 S.W.2d 707,
711 (Tex. App.—San Antonio 1997, writ denied).1
At trial, the court allowed Helping Hands to present expert testimony regarding
damages based on lost funding for a period of ten to twenty years, despite the
fact that pursuant to the agreement between the parties, such funding was
renewable on a yearly basis, was entirely within the discretion of the United
Way, and there were no guarantees Helping Hands would receive the funding each
year. Id. After reviewing cases involving proof of lost profits by
for-profit entities, the court of appeals held that the expert testimony did not
support the excessive damage award calculated over the ten to twenty year period
because “the mere hope of funding renewable at the discretion of another party
will not support recovery of any future funds the other party could withhold at
its discretion,” and “Helping Hands’ expectation of renewal of funding in
light of the United Way’s prior warnings were at best hopeful; ‘in reality,
they were little more than wishful.’” Id. at 711-12 (quoting Tex.
Instruments, 877 S.W.2d at 280).
Here,
Collinsworth’s projections were no more than wishful; she conceded she ignored
the terms of the agreement when measuring lost profits over a six-year period.
At trial, Collinsworth testified that in deciding what time frame to use,
“[t]he contract was not an issue for [her]” and she “did not consider [the
termination] letter to be relevant.” In selecting six years as opposed to some
other period, she simply said that, “2006 was, I felt, a long enough time
frame to get a snapshot of [appellee’s] value over time.” She added that the
time frame was “consistent” with conversations she had with two individuals
who owned “similar all tool distributorships,” who had told her “if you
did what you were supposed to do, you could expect a long-term relationship.”
Collinsworth further testified that there was “no specific document [she
could] point to” in selecting the time frame. Moreover, Collinsworth did no
projections of damages for a sixty-day period, or through September 1, 2001 (the
end of the contractual one-year term), or through October 15, 2001 (the date of
actual termination).
Appellee
argues that because the agreement was renewable and no notice to terminate was
provided before the suit was filed, Collinsworth could aptly rely upon the
agreement as a valid, subsisting agreement with expectations of automatic
renewals when she made her calculations. Primarily, this argument fails because
Collinsworth testified that she did not consider the terms of the agreement at
all in calculating her lost profit projections. Additionally, considering the
terms of the agreement and the deterioration of the parties’ business
relationship prior to the suit, appellee and its expert could not have had a
reasonable expectation of continued sales of appellant’s products.
Appellee
also contends that because its damages sound in tort, appellant cannot take
advantage of a contractual limitation on damages. In effect, appellee argues
that lost profit damages not recoverable in a contract action because they are
speculative nevertheless are recoverable under other legal theories. However, no
case so holds. The cases cited by appellee concern situations where third
parties have sought to escape tortious interference liability pursuant to terms
of the contracts they were alleged to have interfered with. See, e.g.,
Juliette Fowler Homes, Inc. v. Welch Assocs., 793 S.W.2d 660, 666 (Tex.
1990); Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989).
Here, appellant is not a third-party tortfeasor seeking to limit tort damages
based on some limitation in a contract to which it was not a party. The only
damages claimed in this case by appellee are damages flowing from its
contractual status as appellant’s distributor. Therefore, appellant is not
seeking to take advantage of some “contractual limitation” on damages.
While
Collinsworth’s speculation that the agreement would have perpetually renewed
over a six year period was at odds with the terms of the agreement and the
evidence presented regarding the relationship between the parties, the use of
the six-year period was not the only deficiency in Collinsworth’s testimony.
B. Facts of the Case
Collinsworth’s
projections also included lost profits from sales to customers that appellee
decided to stop selling to or relinquish, that were not part of appellee’s
territory under the agreement, and that refused to purchase appellant’s
products through appellee due to dissatisfaction with appellee’s service.
Additionally, Collinsworth projected a dramatic increase in appellee’s sales
of appellant’s products over the six-year period that had no relation to
established results, but were based on one record year and the unsubstantiated
projections received from appellee’s owner, who did not testify regarding his
projections. This was plainly improper. See VingCard, 59 S.W.3d at 864
(holding lost profit projections were properly based on the plaintiff’s
existing market and client base and established sales record).
C. Calculating Lost Profits Under Texas Law
Finally,
Collinsworth incorrectly calculated net profits by measuring lost gross profits,
not lost net profits, as the law requires. See Holt Atherton Indus. v. Heine,
835 S.W.2d 80, 83 n.1 (Tex. 1992) (holding proper measure of damages is lost
net profits). “Net profits” are defined as “what remains in the conduct of
business after deducting from its total receipts all of the expenses incurred in
carrying on the business.” Turner v. PV Int’l, 765 S.W.2d 455, 456
(Tex. App.—Dallas 1998, pet. denied). Here, Collinsworth testified she
deducted only the “incremental costs of selling the tools” and not other
expenses incurred in carrying on the business of appellee.
III. CONCLUSION
As
discussed above, Collinsworth’s testimony was based on speculation and
conjecture, and, at times, directly contradicted the evidence in this case and
Texas law. In sum, we find her testimony and the data she based it on fall short
of the legal requirement that lost profits be proven by competent evidence with
reasonable certainty. Moreover, since the only evidence supporting appellee’s
damages award lacked probative value and constituted “no evidence,” appellee
failed to establish lost profits as a matter of law.2
Schaefer v. Tex. Emp. Ins. Ass’n, 612 S.W.2d 199, 204-05 (Tex. 1980);
Capital Metro. Transp. Auth. v. Cent. of Tenn. Ry. & Navigation Co., 114
S.W.3d 573, 582 (Tex. App.—Austin 2003, no pet.); Naegeli Transp. v. Gulf
Electoquip, Inc., 853 S.W.2d 737, 741 (Tex. App.—Houston [14th
Dist.] 1993, writ denied). Therefore, we sustain appellant’s seventh issue. In
light of our decision, we need not address appellant’s remaining issues on
appeal. See Tex. R. App. P.
47.1. Having sustained appellant’s no-evidence issue, it is our duty to render
judgment for appellant because that is the judgment the trial court should have
rendered. See Tex. R. App. P.
43.3; Vista Chevorelt, Inc. v. Lewis, 709 S.W.2d 176, 176 (Tex. 1986); Nat’l
Life & Accident Ins. Co. v. Blagg, 438 S.W.2d 905, 909 (Tex. 1969).
Thus, we reverse the trial court’s judgment and render judgment that appellee
take nothing.
SAM
J. DAY
JUSTICE
PANEL B: HOLMAN and GARDNER,
JJ.; and SAM J. DAY, J. (Retired, Sitting by Assignment)
DELIVERED: JANUARY 22, 2004
NOTES
1.
Appellee argues United Way of San Antonio is distinguishable on the facts
from this case in that Helping Hands had received several warnings concerning
future funding, had failed to follow probationary conditions, had not taken
advantage of available multi-year funding, and the contract was not renewable.
We do not agree. Appellee was aware that it was not providing satisfactory
service to its MVI customers and had agreed to a one year renewable contract
that allowed a no-cause sixty-day termination. Moreover, the case clearly states
that Helping Hand’s funding agreement was renewable. United Way of San
Antonio, 949 S.W.2d at 711.
2.
While the jury awarded appellee $700,000 in actual damages as opposed to
$2,239,450 and $2,283,202, which Collinsworth testified they lost, it is clear
that the jury relied to some extent on her testimony in that no other evidence
was presented as to damages. Moreover, since appellee’s net operating income
was $42,338 for 1999 and $55,248 for 2000 and appellant’s products accounted
for only twenty percent of appellee’s total sales, only by placing weight on
Collinsworth’s highly speculative calculations could the jury have concluded
that $700,000 was an appropriate award.